Enviva acquires two pellet plants, plus new off-take agreements

Enviva Partners, LP today announced that it has agreed to purchase a wood pellet production plant in Waycross, Georg., with associated export terminal capacity in Savannah, Georg., (the Georgia biomass acquisition) from Innogy SE, and also has agreed to purchase the wood pellet production plant in Greenwood, S.C., owned by Enviva’s sponsor (the Greenwood acquisition). In connection with the Greenwood acquisition, Enviva’s sponsor has agreed to assign to the Partnership five firm, long-term, take-or-pay off-take contracts with credit-worthy Japanese counter parties (the “associated off-take contracts”) that have maturities between 2031 and 2041, aggregate annual deliveries of 1.4 million metric tons per year (MTPY), and an aggregate revenue backlog of $5.3 billion. The Partnership also announced that it has signed a purchase agreement with investors for the sale of $200.0 million in common units in a private placement to finance a portion of the combined purchase price of the acquisitions.

Highlights

• The Partnership increased its distribution guidance for full-year 2020 and now expects to distribute at least $3.00 per common unit, at a target forward-looking annual distribution coverage ratio of at least 1.20 times, representing at least a 13 percent increase over its per-unit distribution for 2019
• The Partnership now expects full-year 2020 net income to be in the range of $33.9 million to $43.9 million and adjusted EBITDA to be in the range of $185.0 million to $195.0 million
• With the benefit of the associated off-take contracts, the Greenwood plant and the Waycross plant will be fully contracted through 2035 and the Partnership’s total product sales backlog will increase by 52 per cent from $10.2 billion to $15.5 billion, on a pro forma basis as of April 1, 2020
• On total investment of $375 million, the acquisitions are expected to generate net income in the range of $18.7 million to $22.7 million and adjusted EBITDA in the range of $56.0 million to $60.0 million once they and the associated off-take contracts are fully ramped and integrated
• The Partnership is financing the acquisitions through a combination of the net proceeds from the sale of $200.0 million in common units in the private placement and expected borrowings under its existing $350.0 million revolving credit facility

“The Greenwood and Georgia biomass acquisitions are fundamentally transformative for Enviva’s scale and diversification,” said John Keppler, chairman and CEO of Enviva. “Not only are we increasing Enviva’s fully contracted production capacity by 35 per cent, but we are doing so in new fibre baskets, with new deep-water terminal infrastructure, and with new customers under new long-term, take-or-pay off-take contracts that we expect will enable us to continue our track record of generating durable cash flows and growing our distributions sustainably well into the future.”

Acquisitions

The Partnership has agreed to purchase Georgia Biomass Holding LLC, which, through its wholly owned subsidiary, owns a wood pellet production plant in Waycross, Georg., from Innogy SE and one of its subsidiaries for a purchase price of $175.0 million in cash, subject to customary adjustments. The Waycross plant has been operating since 2011 and has a production capacity of approximately 800,000 MTPY.

As part of the Georgia biomass acquisition, the Partnership also will acquire long-term, take-or-pay off-take contracts with an existing Partnership customer (the “Acquired Waycross Contracts”) for annual deliveries of approximately 500,000 MTPY through 2024. The Waycross plant exports its wood pellets through a terminal at the Port of Savannah, Georg., under a long-term terminal lease and associated services agreement. The Partnership expects the Georgia biomass acquisition to close in the third quarter of 2020, subject to customary closing conditions.

The Partnership also has agreed to purchase Enviva Pellets Greenwood Holdings II, LLC, which, through its wholly owned subsidiaries, owns a wood pellet production plant in Greenwood, S.C., from its sponsor for cash consideration of $132.0 million and the assumption of a $40.0 million third-party promissory note bearing interest at 2.5 per cent per year. The Greenwood plant has been operating since 2016 and its wood pellets are exported through the Partnership’s terminal at the Port of Wilmington, N.C.

The Partnership plans to invest $28.0 million to expand the Greenwood plant’s production capacity to 600,000 MTPY by the end of 2021, subject to receiving the necessary permits. The sponsor has agreed to reimburse the Partnership for any construction costs incurred for the planned expansion in excess of $28.0 million. The Partnership expects the Greenwood acquisition to close on or about July 1, 2020.

Associated off-take contracts

Enviva’s sponsor has agreed to assign five firm, long-term, take-or-pay off-take contracts with credit-worthy Japanese counter parties, aggregate annual deliveries of 1.4 million MTPY, and a total revenue backlog of $5.3 billion to the Partnership as part of the acquisitions. The associated off-take contracts include:

An 18-year, take-or-pay off-take contract to supply Sumitomo Corporation with 440,000 MTPY of wood pellets. Deliveries under the contract are expected to commence in 2022

A 15-year, take-or-pay off-take contract to supply Sumitomo Corporation with approximately 250,000 MTPY of wood pellets. Deliveries under the contract are expected to commence in 2021

A 10-year, take-or-pay off-take contract to supply Mitsubishi Corporation with 210,000 MTPY of wood pellets. Deliveries under the contract are expected to commence in 2022

An 18-year, take-or-pay off-take contract to supply Sumitomo Forestry Co., Ltd. with 150,000 MTPY of wood pellets. Deliveries under the contract are expected to commence in 2023

A 17-year, take-or-pay off-take contract to supply Suzukawa Energy Center Ltd. with 340,000 MTPY of wood pellets. Deliveries under the contract are expected to commence in 2022

Including the Associated Off-Take Contracts and the Acquired Waycross Contracts, the Partnership’s total weighted-average remaining term of off-take contracts will increase from 11.4 years to 12.7 years and total product sales backlog will increase from $10.2 billion to $15.5 billion, on a pro forma basis as of April 1, 2020.

In addition, with the associated off-take contracts and the acquired Waycross contracts, the production from the Greenwood plant and the Waycross plant is expected to be fully contracted through 2035. In 2021, the acquisitions are expected to generate net loss in the range of $13.7 million to $17.7 million and adjusted EBITDA in the range of $39.0 million to $43.0 million. In 2024, once the acquisitions and associated off-take contracts are fully ramped and integrated, the acquisitions are expected to generate net income in the range of $18.7 million to $22.7 million and adjusted EBITDA in the range of $56.0 million to $60.0 million. On this basis, the combined purchase price for the acquisitions, including the expected costs to expand the Greenwood plant, represents an adjusted EBITDA multiple of approximately 6.5 times.